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An introduction to working Capital Management

Topic- Introduction to Working Capital
Subject- Working Capital Management

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An introduction to working Capital Management

  1. 1. AN INTRODUCTION TO WORKING Dr. NEERAJ CHITKARA CAPITAL MANAGEMENTDr. Neeraj ChitkaraAssistant ProfessorSamalkha Group of Instituions.Email-
  2. 2. MEANING OF WORKING CAPITAL Working Capital is that capital which is involved in Dr. NEERAJ CHITKARA the current assets of the business. Basically it is the capital which is required to meet the day to day expenses of the business.
  3. 3. TYPES/KINDS OF WORKING CAPITAL On the basis of  On the basis of need Dr. NEERAJ CHITKARA Concept Gross Working Capital  Permanent Working Net Working Capital Capital  Temporary Working Capital
  4. 4. ON THE BASIS OF CONCEPTS Gross working capital =Total current assets Dr. NEERAJ CHITKARAArguments in the favour of this concept :1. Management is concerned with total current assets as they represent the funds available for operating expenses.2. Gross Concept gives the ideas about the liquidity and profitability of business.3. Every increase in current borrowings will increase current assets.
  5. 5. CONT.. Net working capital = Current assets-Current Liabilities Dr. NEERAJ CHITKARAArguments in the favour of this concept :1. This concept helps the creditors in measuring liquidity.2. It gives idea about how much to invest in current assets.3. Only the surplus can be used to meet contingencies.
  6. 6. ON THE BASIS NEED Permanent working Capital Dr. NEERAJ CHITKARAThe sum up of the funds required to finance the minimum level of current assets of the business is known as the permanent working capital. This capital is required every time to put the business into working condition. Regular working Capital Reserve Working Capital
  7. 7. CONT… Temporary working CapitalIt is required to explore the short term opportunities of Dr. NEERAJ CHITKARA the market. The requirement of temporary working capital varies with time period. Seasonal working capital Special working capital
  9. 9. CONCEPTS OF WORKING CAPITAL Balance Sheet Concept Dr. NEERAJ CHITKARA  Gross working Capital  Net working Capital Operating Cycle concept
  10. 10. OPERATING CYCLE CONCEPTOperating Cycle may be defined as the time duration starting from the procurement of raw materials or goods and ending with sales realization . Dr. NEERAJ CHITKARAOperating Cycle of a firm consists of the time requirement for the completion of the following activities. Procurement of raw material Conversion of raw into goods Distribution of goods Sale of goods(Cash or Credit) Conversion of receivables into Cash
  11. 11. CALCULATION OF DURATION OF OPERATING CYCLE Duration of raw material storage stage + Dr. NEERAJ CHITKARA Duration of work in process stage + Duration of finished goods stage + Duration of receivables collection stage - Duration of the credit period allowed by suppliers O=R+W+F+D-C
  12. 12. ESTIMATION OF WORKING CAPITAL REQUIREMENTS Calculate no. of operating cycles in a year i.e 365 Dr. NEERAJ CHITKARA no. of days in a operating cycle Total operating exp. Of the year No. of the operating cycle in the year The resulted amount plus additional amount for contingences will be the avg. requirement of working capital.
  13. 13. THE OPERATING CYCLE CONCEPT Receivable Dr. NEERAJ CHITKARA Cash Sale Inventory Labour Assets, Taxes Profits……
  14. 14. CASH CONVERSATION CYCLE Dr. NEERAJ CHITKARA Sell Purchase Pay for Collect Inventory Inventory Inventory Receivables On Credit